Russian businesses are facing increasing financial distress with a record increase in the number of companies going bankrupt at the start of 2024, the Russian business daily Kommersant reported on Thursday.
According to data from the Unified Federal Register of Bankruptcy Information (EFRS), 571 companies in Russia declared bankruptcy in January 2024 — a 57% increase from a year ago.
In February, a 61% increase in bankruptcies was observed compared to last year when 478 businesses did the same.
The increase at the beginning of the year is the first significant increase since early 2021. At that time, the number of corporate bankruptcies in Russia saw a 9.2 percent increase. The trend began to decline over the next 2 years before the recent surge.
Financial experts believe that this surge in bankruptcies was expected after Russia reversed a moratorium on such filings. In the wake of the COVID-19 pandemic, on April 1, 2020, Russia introduced an amendment to its Bankruptcy Law giving the government the authority to impose a temporary moratorium on the filing of bankruptcy petitions against certain legal entities and individuals if certain “extraordinary circumstances” exist.
Since then, Russia has imposed two moratoriums on bankruptcy filings. First prohibition was introduced to mitigate the impacts of the pandemic and was lifted at the back end of 2021.
However, just months later, Russia invaded Ukraine inviting coordinated economic sanctions from Western countries. On 1 April 2022, another moratorium was imposed for a period of 6 months that lasted till October of that year.
Russia’s first deputy economy minister, Ilya Torosov, told Kommersant that this signals a return to pre-pandemic levels.
A similar trend has been observed in the West where corporate bankruptcies increased rapidly last year after a cooling-off period. According to a report by the Financial Times, the number of corporate bankruptcies in the US increased by 30% owing to high rates and an end to COVID-19 aid.
Similar rates were observed in Europe with Germany seeing a bankruptcy increase of 25%, while in France, the Netherlands, and Japan, the increase remained above 30%.
Russia in a Worse Situation
While bankruptcy rates observed in Russia are twice that of their Western counterparts, the bigger problem for Vladimir Putin’s regime is the tightening of Western trade restrictions. There is little to no trade on the government level and secondary sanctions have hit companies doing business with the country.
The US embassy in Vienna announced on Wednesday that treasury official Anna Morris will this week warn Austria and Raiffeisen Bank International of the dangers of doing business in Russia.
Morris, who has focused on illicit money flows during her time in the office, will encourage banks in Austria to examine their Russian exposure and “take mitigation measures”.
The warning is part of a renewed push by Washington on sanctions enforcement.
Putin Looks for Answers
With one eye on the upcoming elections, Vladimir Putin has announced a new lifestyle improvement program promising Russians billions of dollars in healthcare and infrastructure improvements.
Putin’s plan could cost $130 billion more than the current budget and it remains unclear how Russia will manage those funds in a turbulent economy.
As per the Moscow Times, Putin is pondering over changes to the tax system that will allow Russia to get more out of high-income individuals and businesses.
“I propose to think through approaches to modernizing our fiscal system to more equitably distribute the tax burden towards those with higher personal and corporate incomes,” Putin said at his state-of-the-nation address on Thursday.
Even if Putin’s latest plan works out, it is difficult to see how it will generate enough funds to support a dwindling economy and a prolonged war effort.
It seems that Putin’s promises of lifestyle improvements are political shenanigans before Russia’s presidential election is set to take place on the 15 March.
Despite a torrent of economic challenges, Putin is expected to win the election and remain president for another six-year term.
